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Africa's Excellent Growth Prospects for the 21st Century: What Just Happened?

Excerpts from the speech by South African Deputy President Kgalema Motlanthe to the Emerging Markets Summit 2010: The New Reality

The world is changing—this is now well known. What is less well known or not yet understood is that Africa is changing as much as, if not more than, the rest of the world. What we need to understand is that African growth is not a flash in the pan. Africa is the second fastest growing region in the world, after "Developing Asia", and has been for most of the last decade. Forecasts from the IMF and the OECD expect this to continue to be the case. Today I will talk about why this is so, and how much more we can expect from Africa.

A World Economy in Transition

The first decade of the twenty-first century has seen some of the most profound changes in the balance of the world economy. During the course of 2009, the economies of the OECD member countries shrank by about three-and-a-third percent.

Several middle income developing countries were seriously affected too. But, overall, developing countries grew by about 1.2 percent. So, in the middle of the financial crisis, the developing grew four and a half percent faster than the OECD member countries. And investment remained positive in many of these countries.

The developing countries are not autonomous from the industrialised countries. Indeed, the world economy is more integrated than ever before, and all markets are linked. Yet, we do now have a world where the sources of growth are multiple—it is no longer a case of one or two locomotives pulling the world economy forward. This is "the new reality".

African growth is not a flash in the pan. Africa is the second fastest growing region in the world, after "Developing Asia", and has been for most of the last decade.

The dynamism in the world economy is clearly shifting from North to South and from West to East. The OECD Development Centre estimates that, measured in terms of purchasing power parity [real domestic buying power], the developing countries will have a larger share of the world economy than the OECD countries by 2012. By 2030, developing countries will have fifty-seven percent of the world economy, and the current OECD members, forty-three percent.

If we measure the contribution of different parts of the world to economic growth, the developing world contributed almost seventy percent of world growth measured in terms of domestic buying power during the last decade. China alone contributed nearly thirty percent of world growth.

African Growth Trends

Africa is now seen in a new light. McKinsey's report on Africa, first presented to the Global Forum in Cape Town in June, spells out in some detail why we can be optimistic and why we believe that recent trends in African growth are the foundations for long terms fast growth, not a flash in the pan.

Not many realise how profound the changes in Africa have been in recent years. Africa came through the depths of the economic crisis better than many expected. Indeed, there were fears that the weakness of the world economy would affect Africa so severely that the economic advances of recent years would be reversed.

As it turned out, Africa grew even faster than the average for emerging and developing economies during the crisis. Africa grew by about two-and-a-half-percent, on average, during 2009.

We should not be complacent about Africa today. It is true that better macroeconomic strategies meant that most African economies were not heavily in debt when the financial crisis struck. However, the duration of the world crisis, which is now a crisis of slow growth, is making it more and more difficult for some African countries.

There is a lot we have achieved in Africa. African growth through the decade 2000 to 2009 was more successful than at any other time in modern African history. Not since the 1970s has African grown at an average rate of five percent, and this time growth was more widespread in Africa. It was not just a few countries taking advantage of high commodity prices. More than half of African countries grew at an average rate of growth of five percent or higher in the three years 2006 to 2008.

As it turned out, Africa grew even faster than the average for emerging and developing economies during the crisis.

Many African countries are beginning to roll back poverty. While we might not achieve all of our Millennium Development Goal objectives, Africa made more progress in the war against poverty during the 2000s than many give it credit for.

A recent study by Xavier Salai Martin finds that virtually all African countries will achieve their millennium development poverty target by 2012, three years ahead of time. This is, I understand, a controversial finding, but it certainly shows how perspectives on Africa are shifting.

Why is Africa doing so much better (Will it last?)

Africa has experienced growth spurts before. Some of us are old enough to remember that in the 1960s and 1970s, a growth acceleration, mainly driven by a sustained commodity price boom, helped make some newly independent African countries complacent. Those of us with memories of that era will be wondering: are we headed for the same scenario—another African growth opportunity squandered?

To answer this question we have to know what the basis of the current African surge is, and we also need to know why Africa survived the crisis better than many other regions.

O

ne theory is that many African economies are relatively delinked from the world economy. The small, low income countries are not yet fully integrated by this account. But that explanation begins to fall apart when we find that in many of the same countries exports grew very strongly through the decade of the noughties (2000s).

Another explanation, in the opposite direction, is that the improvement in African growth was largely a result of the improvement in Africa's terms of trade. The prices of African exports rose high enough to support faster growth. However, rising African consumption has also made a huge contribution to growth. In the four years 2005 to 2008, consumer spending across the continent increased at a compound annual rate of 16 percent, more than twice the GDP growth rate.

A third possible explanation for improved growth is the rise in development assistance to Africa. Even more significant are the trends in tax collection in Africa. Since 1995, overseas development assistance has fallen from about 16 percent of African GDP to about 12 percent of African GDP. Meanwhile African tax collections rose from about 18 percent of GDP in 1995 to 23 percent in 2008.

So, positive trends in foreign direct investment and in domestic tax collection have been considerably more important than foreign aid as a source of funds for growth in Africa over the last decade. If delinking, the terms of trade and foreign aid don't explain the positive African growth trends, what does?

If we compare the current picture in Africa with the commodity boom of the 1960s and 1970s, the most obvious difference is that African countries have been managing macroeconomic policy with much greater care. All the key indicators are far more carefully controlled. Inflation, the budget deficit, government debt and inflation—all of these are much better managed in most African countries than they were in the 60s and 70s.

If we conclude that the better management of domestic economic policies is the most significant shift in Africa, the next question is: What conditions gave rise to better economic policies?

There are several factors. One important one is that there have been efforts through major capacity building initiatives to retain talented African technocrats in Africa, or to bring African technocrats back to Africa. Some of these initiatives also finance high quality post-graduate training in Africa, and provide incentives for top academics to stay in Africa.

Another factor has been that since 1990, a lot of the ideological and geopolitical fog has cleared. Africa was a pawn in a global game, often against Africa's best interests. After the Cold War ended, Africa could make its own way forward, with greater freedom.

There are several factors. One important one is that there have been efforts through major capacity building initiatives to retain talented African technocrats in Africa, or to bring African technocrats back to Africa.

The most important factor supporting better policies is better governance. There are many measures which show how much African governance has improved since 1990. One example: the Freedom House index showed that only one-third of African countries were free or semi-free in 1990. By 2009, two-thirds of African countries were classified as free or semi-free.

How far are we? How much further can Africa go?

Africa has come some way in the fairly short period since 1990. However, if you benchmark Africa against some of the best performing countries and regions you can see how far we have to go. Poverty reduction, improvements in social services, improvements in economic regulation and services, improvements in infrastructure—all of these currently present significant challenges in most African countries.

What we need in order to improve our policies and performance is no secret. We need to further improve and consolidate accountability in governments, and we need to improve the quality of our public services. To do this on a sound and predictable basis we need better quality taxation systems across the continent, so that development aid need only be used to support countries in an early phase of development, or in those in crisis.

In addition, we need a much stronger commitment to economic integration in Africa, starting with really effective, integrated economic regions. Africa has over 50 countries on one continent. Economic integration is hard work. It is too hard for governments to do it alone. We will only be truly able to say that we have left the ravages of colonisation behind us, once we have reconstructed Africa in a rational, integral form. It will also them form a most effective platform for economic growth and development.

Where does South Africa come in?

From the outset of the democratic South African republic, we have made African political stability and economic development our foreign policy priorities.

To pursue these objectives we have engaged in a wide range of peace keeping operations, peace negotiations and post-conflict reconstruction actives. At the same time, we have no illusions that we can try to remake troubled counties in our own image. Our role, rather, is to help to give responsible leaders an opportunity to remake their own countries.

We have also supported economic development through loosening our regulations on foreign investments in such a way that they favoured Africa, and through our development agencies—the Industrial Development Corporation and the Southern African Development Bank. All have these have mobilised capital for investment in Africa.

In addition, many of our large companies have invested heavily in Africa in a very wide range of sectors, including mining, banking, telecommunications, food and beverages , retail, and hospitality. We know that these investments have made a significant contribution to lifting Africa's growth potential. We are pleased that other growing economies are also making significant contributions to Africa's growth capacity, in various ways.

African prospects are enormous. It is hard to estimate how far we can go, and how fast. We have fabulous raw materials, a growing and increasingly healthy population. With our minerals, our people, and our agricultural potential, who knows where the limits are?

What we do know is that the recipe for success is continued progress towards greater and more widespread accountability of governments, and continuous improvements in economic policies and government services. We also know that this recipe is increasingly widely understood.

We invite you all to join us in our incredibly exciting journey forward.